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Foreign Assistance: Assessment of Selected USAID Projects in Russia

(Letter Report, 08-03-95, GAO-NSIAD-95-156).

PART I

THIS DOCUMENT IS IN FOUR PARTS. THIS IS PART I

CLICK FOR PART I, PART II, PART III, PART IV


Pursuant to a congressional request, GAO reviewed the Agency for International Development's (AID) assistance projects in Russia, focusing on whether: (1) individual AID projects met their objectives and contributed to systemic reforms; (2) the projects had common characteristics that contributed to their successful or unsuccessful outcomes; and (3) AID adequately managed the Russian projects.

GAO found that: (1) some of the projects reviewed fully met or exceeded their objectives, while other projects met few or none of their objectives; (2) 3 AID projects contributed to fundamental structural changes in Russia because they had sustainability built into their design and they focused on national or regional issues; (3) the successful projects had broad and strong support from all levels of the Russian government, U.S. contractors with long-term physical presence in Russia, a broad scope to maximize benefits, and specific sustainability objectives, and complemented or supported Russian initiatives; (4) Russian officials' commitment to reform in certain sectors was critical to project success; (5) the unsuccessful projects were poorly designed and implemented and often had little or no impact on problems; (6) AID made certain exceptions to its normal procedures and processes in its desire to respond quickly to assist Russia; and (7) AID failed to adequately manage some projects because of problems in delegating management and monitoring responsibility to the Moscow AID office, inadequate staff, and inadequate management information systems.

Report to Congressional Requesters

August 1995

FOREIGN ASSISTANCE - ASSESSMENT OF

SELECTED USAID PROJECTS IN RUSSIA

GAO-NSIAD-95-156

USAID Projects in Russia

Abbreviations

ARC - American Russian Center, University of Alaska-Anchorage

BCG - Boston Consulting Group

CNFA - Citizens Network for Foreign Affairs

GKI - State Committee of the Russian Federation for the Management

of State Property

IBTCI - International Business & Technical Consultants, Inc.

NIS - New Independent States

PADCO - Planning and Development Collaborative International

PIER - Partners in Economic Reform

PIET - Partners for International Education and Training

RCG-HB - RCG-Haggler Bailly

RPC - Russian Privatization Center

TVG - Tri Valley Growers

USAID - U.S. Agency for International Development

Letter

B-260365

August 3, 1995

The Honorable Benjamin Gilman

Chairman

The Honorable Lee Hamilton

Ranking Minority Member

Committee on International Relations

House of Representatives

The Honorable Sam Nunn

Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United States Senate

This report responds to your request that we evaluate assistance

projects in Russia managed by the U.S. Agency for International

Development (USAID). Specifically, we determined whether (1)

individual USAID projects were meeting their objectives and

contributing to systemic reforms, (2) the projects had common

characteristics that contributed to their successful or unsuccessful

outcomes, and (3) USAID was adequately managing its projects in

Russia. In conducting our study, we reviewed

10 judgmentally selected projects with obligations of $64.6 million

as case studies and used audits and evaluations performed by the

USAID Inspector General.

BACKGROUND

The United States began providing limited assistance to the Soviet

Union in December 1990 to support the reform effort and then

increased assistance after the Soviet Union dissolved in December

1991. In October 1992, the Freedom for Russia and Emerging Eurasian

Democracies and Open Markets Support Act of 1992 (P.L. 102-511),

commonly known as the Freedom Support Act, was enacted. It further

increased assistance to the former Soviet Union and established a

multiagency approach for providing assistance. It also called for

the designation of a coordinator within the Department of State whose

responsibilities would include designing an assistance and economic

strategy and ensuring program and policy coordination among federal

agencies in carrying out the act's policies.

The Freedom Support Act sets forth the broad policy outline for

helping former Soviet Union countries implement both political and

economic reforms. It also authorized a bilateral assistance program

that is being implemented primarily by USAID. In January 1994, the

State Department Coordinator approved the first overall U.S.

assistance strategy for the former Soviet Union, and in May 1994, the

Coordinator approved the strategy specifically for Russia. This

strategy has three core objectives: (1) help the transition to a

market economy, (2) support the transition to a democratic political

system, and (3) ease the human cost associated with the transition.

As of December 1994, USAID had obligated $1.4 billion and spent $539

million for programs and projects in Russia since fiscal year 1990.

USAID's assistance to Russia has focused on 13 sectors, such as

health care and housing, that support the three U.S. objectives.

Hundreds of U.S. contractors and grantees are responsible for

implementing individual projects in the 13 sectors.

RESULTS IN BRIEF

Projects have had mixed results in meeting their objectives. Some of

the USAID projects we reviewed fully met most or all of their

objectives, were contributing to systemic reform, and were

sustainable. Others did not have all or some of these attributes of

success.

The more successful projects had several characteristics in common:

(1) all levels of the Russian government provided broad and strong

support, (2) U.S. contractors had a long-term physical presence in

Russia, and (3) these projects had a specific sustainability

objective. Also, successful projects generally complemented or

supported ongoing Russian initiatives. Projects that did not meet

all their objectives lacked one or more of these characteristics,

were poorly designed and implemented, and often had little or no

impact on problems.

USAID did not adequately manage some projects it funded. The

devolution of management and monitoring responsibility from USAID's

Washington office to its Moscow office delayed decision-making and

created confusion among contractors. Furthermore, USAID's management

information systems were inadequate, and it did not adequately

monitor or coordinate some projects. USAID has taken steps to

overcome these problems, including terminating some unsuccessful

projects, refining its assistance strategy, and undertaking efforts

to improve project monitoring and evaluation.

In commenting on this report, USAID said that the difficult operating

environment in which it worked during the first 2 years of the

program in Russia cannot be overstated. We agree that USAID faced

numerous operating obstacles in getting this program underway, and

our observations on how well the projects performed should be seen in

that context.

PROJECT RESULTS HAVE BEEN MIXED

The 10 projects we reviewed showed mixed results in meeting their

objectives.

Two projects, coal industry restructuring and housing sector

reform, met or exceeded their objectives.

Five projects, voucher privatization, officer resettlement, small

business development, district heating, and agribusiness

partnerships. met some but not other objectives.

Three projects, health care, commercial real estate, and

environmental policy met few or none of their objectives.

1 The environmental policy project we reviewed was still in the

early implementation phase. USAID awarded the initial contract in

September 1993 to establish offices and technical support, but did

not sign the agreements to implement the actual project work until

April and September 1994. The projects will extend through September

1997.

PROJECTS THAT CONTRIBUTED TO

SYSTEMIC REFORM

Three of the 10 projects we examined were contributing significantly

to systemic reform, that is, they were making fundamental

structural changes. These projects were effecting change because

they had sustainability--benefits that extend beyond the project's

life span--built into their design and they focused on issues on a

national or regional scale.

A project can contribute to systemic reform without meeting all of

its objectives. Two projects, coal industry and housing sector

reform, contributed to systemic reform and met their objectives. The

privatization project contributed to systemic reform but did not meet

all its objectives.

HOUSING SECTOR PROJECT

The housing sector project helped Russian ministries and agencies

implement 38 laws, regulations, and decrees to reform housing

policies and practices. The Urban Institute, which implemented the

project, also completed a series of pilot projects related to housing

maintenance, mortgage lending, rent reform, and property rights.

Many of the activities affect the entire country or could be

replicated in additional cities. The project helped create new

institutions, strengthened existing ones, and distributed procedural

guides and manuals to local governments as a way to sustain the

reforms.

PRIVATIZATION PROJECT

The contract for implementing the voucher privatization project

called for Deloitte & Touche to establish 35 voucher clearing centers

in cities throughout Russia. This project encountered some

difficulty in meeting its initial time frames and establishing all

the centers, but overall the project was successful. The active

centers handled 70 million voucher transactions as part of Russia's

unprecedented privatization program, and over half the centers

participate in ongoing capital market activities.

COAL RESTRUCTURING PROJECT

Partners in Economic Reform (PIER), which implemented the coal

restructuring project, has facilitated movement toward the

transformation of the entire coal sector. PIER helped build a

consensus for reform among the Russian government, mine labor unions,

and mine management. It was also instrumental in facilitating a

World Bank review that could lead to a restructuring loan. To

sustain the project's contribution to systemic reform, PIER helped

establish long-term business relations between the Russian and U.S.

coal industries, formed a consortium of U.S. coal-related business,

and is involved in social safety net and new job-creation activities.

Finally, PIER helped facilitate the sale of U.S. equipment in

Russia.

PROJECTS WITH RELATIVELY LIMITED CONTRIBUTION TO SYSTEMIC REFORM

Seven projects we examined did not contribute significantly to

systemic reform because they either did not meet their objectives,

were narrowly focused, or lacked sustainability.

SMALL BUSINESS

DEVELOPMENT PROJECT

The University of Alaska sought to help develop small businesses by

establishing American Russian Centers in four cities across the

Russian Far East. The centers' purpose was to help train

entrepreneurs, help form new businesses, and build lasting business

ties between the region and the United States. To become

self-supporting after USAID stopped funding, the centers planned to

develop partnerships with counterpart institutions. However, the

centers have so far been unable to attract alternative funding.

ENVIRONMENTAL POLICY AND

TECHNOLOGY PROJECT

CH2M Hill International Services, Inc., signed a contract in

September 1993 for an environmental policy development and technology

project. The contractor had difficulty filling critical staff

positions in Russia and providing required work plans for the

activities. Of the work plans due in November 1994, one was approved

in May 1995, while the other was still being revised as of June 1995.

HEALTH CARE TRAINING PROJECT

The project to provide health care financing training in the United

States to Russian health professionals was implemented by Partners

for International Education and Training (PIET), several training

institutions, and USAID. Although PIET and the institutions provided

the training as required, the Russian participants did not have the

authority, expertise, or resources to make systemic changes. In

addition, changes in Russia's health reform plans have made the

training irrelevant.

COMMERCIAL REAL ESTATE PROJECT

A commercial real estate project, implemented by International

Business & Technical Consultants, Inc. (IBTCI), was intended to

create a standard approach for increasing the availability of

commercial real estate in six Russian cities. The project design

called for a pilot project] roll-out concept, but IBTCI did not roll

out the pilot in any of the cities and used a different approach in

each city. Also, Russian officials said the project had little or no

effect on the availability of commercial real estate in their cities.

DISTRICT HEATING PROJECT

The district heating project, which USAID recommended we review, was

implemented by RCG-Haggler Bailly and met its objectives primarily by

conducting energy audits and training as well as providing energy

efficiency equipment to two Russian cities. However, as of February

1995, some of the equipment in one of the cities had not been

installed. Russian officials said the equipment may never be

installed because Russian authorities never certified it. USAID had

not monitored the use of the equipment or followed up on the impact

of the studies produced for the project. Consequently, we found no

indication that the project contributed to systemic reform in the

energy efficiency area.

AGRIBUSINESS PARTNERSHIPS PROJECT

The agribusiness partnerships project, implemented by Tri Valley

Growers, helped two U.S. companies establish joint ventures in two

Russian cities. Although the involvement of U.S. companies

increased the probability that the business ventures would be

sustained, the limited scope of the partnerships makes it unlikely

that they will have a significant effect on reforming Russia's

agricultural sector. USAID has discontinued the entire agribusiness

partnerships project in Russia.

OFFICER RESETTLEMENT PILOT PROJECT

The Russian officer resettlement pilot project was not intended to be

sustainable after its completion, but instead was motivated by the

United States' desire to encourage the withdrawal of Russian troops

from the Baltic countries. The $6-million pilot project objective

was to construct 450 housing units to resettle demobilized officers

by July 1994. As of February 1995, 422 units were either occupied or

available for use, so in that sense the project was successful.

The Baltic countries are Latvia, Lithuania, and Estonia. The

United States never officially recognized them as part of the former

Soviet Union.

COMMON THEMES TO SUCCESSFUL

PROJECTS

Successful projects (1) had strong support and involvement at all

levels of the Russian government, (2) had a long-term physical

presence by U.S. contractors in Russia, and (3) were designed to

achieve maximum results by supporting Russian initiatives, having a

broad scope, and including elements that made them sustainable. A

critical element to a project's success was the degree to which

Russian officials were committed to reform in the particular sector.

STRONG SUPPORT AND

INVOLVEMENT AT ALL RUSSIAN

LEVELS

Russians at both the federal and local levels demonstrated a strong

commitment to the projects that were contributing to systemic reform.

The Russian government also provided financial or in-kind support,

and Russian nationals held leadership roles in the projects. For

example, PIER's approach to implementing the coal project included

working with officials in the Ministry of Fuel and Energy, Fund of

Social Guarantees, and the federal coal company; academic

institutions; oblast' and city officials in the two targeted

regions; local mine management; and representatives of two labor

unions. Russian nationals served as codirectors, and PIER staff

received free apartments and office space.

To accomplish the housing sector reform project, the Urban Institute

worked closely with officials in the Ministries of Finance and

Economy and the State Committee on Architecture and Construction at

the federal level, the Moscow city government, various maintenance

firms, banks, and grass-roots condominium associations. Although

office space in Moscow is expensive and scarce, the Institute

received free office space. In addition, Russian nationals played a

key role on the Institute's staff.

In contrast, many less successful projects lacked the buy-in of

Russians at either the local or federal level and had little Russian

involvement or contribution. For example, the State Committee of the

Russian Federation for the Management of State Property (GKI),

Russia's federal agency overseeing the privatization effort, was

instrumental in designing the voucher clearing and commercial real

estate projects. However, in some cities, local officials were not

involved in designing the projects and had little interest in them;

as a result, these projects were not fully successful.

The officer resettlement project established housing in several

cities, but not in Novosibirsk, where city officials reneged on a

previous administration's commitment to provide needed infrastructure

support. Because officials at the federal and oblast' levels were

not involved in the initial agreements, they had no authority to

require the new city administration to fulfill the contract, nor were

they willing to provide additional funding for the project.

The district heating project was not completed in Yekaterinburg

because local officials did not allow monitoring equipment to be

installed. They said the proper Russian authorities had not

certified the equipment.

Oblasts, krays, and republics are regional administrative units

similar to states in the United States.

GKI is a Russian acronym.

LONG-TERM PRESENCE BY U.S.

CONTRACTORS IN RUSSIA

The successful projects usually had long-term advisers living in

Russia, which enabled the advisers to build trust, learn about local

conditions and plan accordingly, monitor progress closely, and

correct problems as they occurred. In addition, successful projects

involved contractors that had appropriate experience to carry out the

project. For example, the Urban Institute has had two long-term

advisers living in Moscow since 1992 who maintained close contact

with Russians involved in housing reforms. PIER's project director

had lived in Moscow for 3 years. Other members of its American staff

had lived in Kemerovo and Vorkuta, the key cities of the major coal

mining oblasts, since 1993 and 1994, respectively. The two field

staff have years of experience as coal mine engineers. Russian

officials at all levels (1) praised PIER's staff; (2) described

PIER's assistance as timely, well-targeted, and beneficial; and (3)

wanted the project to continue and expand.

Contractors implementing many of the less successful projects did not

have staff living in the Russian cities being assisted. For example,

neither IBTCI nor RCG-Haggler Bailly had permanently assigned

American staff in the cities being assisted. IBTCI's consultants

would fly in, make rapid diagnoses, deal with problems quickly, and

then leave. Many U.S. officials, Russians, and contractors said

that relying on "fly-through" consultants rather than permanent staff

was an ineffective approach.

DESIGNED TO MAXIMIZE RESULTS

Successful projects, the housing reform, voucher privatization, and

coal industry restructuring--were designed to be sustainable, have a

widespread effect, and support existing initiatives. Each project

supported ongoing Russian efforts at widespread reform, considered

local conditions, and contained elements to sustain the effects of

the project beyond its life span.

In contrast, some projects were not designed to maximize their

potential impact. For example, the project design required

RCG-Haggler Bailly to provide energy efficiency equipment and audits

but did not include methods to replicate the project in other cities,

or extend monitoring efforts to determine how the equipment or

studies were used. The USAID Inspector General reported that other

projects did not include any follow-up steps to ensure that the

assistance provided was used. In addition, projects focusing on

health care training and commercial real estate leasing did not

consider local needs and conditions and thus had limited impact.

Several projects did not adequately identify outcomes or measurable

results. For example, the Tri Valley Growers' contract with USAID

did not stipulate how many agribusiness partnerships were to be

established. The design of the coal project also did not adequately

identify outcomes or measurable results, but PIER developed an

effective project nonetheless. The USAID Inspector General found

similar problems when reviewing many projects in the region.

Audit of the Bureau for Europe's Technical Assistance Contracts

(Report No. 8-180-93-05, June 30, 1993); Audit of the Distribution

of Emergency Medical Supplies to the New Independent States Under

USAID Cooperative Agreement With the People-to-People Health

Foundation "Project Hope" (Report No. 8-110-94-006, Mar. 17, 1994);

and Audit of Activities to Improve Crop Storage Systems in the New

Independent States (Report No. 8-110-94-014, Aug. 31, 1994).

Audit of the Bureau for Europe's Technical Assistance Contracts

Report No. 8-180-93-05, June 30, 1993; Audit of the ENI Bureau's

Monitoring, Reporting and Evaluation System (Report No.

8-000-95-002, Nov. 28, 1994); and Audit of Selected Privatization

and Restructuring Activities in Russia (Report No. 8-118-95-007,

Mar. 10, 1995).

RUSSIAN INVOLVEMENT AND

COMMITMENT

It is widely acknowledged that the Russian people themselves will

determine the ultimate success or failure of political and economic

reforms. Without their involvement and commitment to change, outside

assistance will have a limited effect. For example, the support and

involvement of Russian federal agencies, such as GKI in the privatization

effort and the ministries related to housing, ensure that projects in

those sectors are likely to have a wide and sustained effect. The coal

project's impact depends on Russia's commitment to restructure the coal

industry.

In several sectors, a Russian commitment to reform remains elusive.

Powerful factions in the Russian legislative branch strongly oppose land

reform, and the Ministry of Health has not demonstrated a commitment to

health care reform. This lack of commitment raises concerns that projects

in the agriculture and health sectors will not have widespread benefits.

USAID is now working with the Ministry of Environmental Protection and

Natural Resources, but the level of support from other important federal

ministries, including the Ministry of Finance, is still questionable.

Other domestic conditions will also influence a project's success.

Russia's commitment to breaking up monopolies and its ability to attract

capital for modernizing outdated equipment, restructuring existing state

enterprises, and starting new businesses will affect the pace and scope of

Russia's transformation to a market economy. Moreover, projects such as

introducing mortgage lending will depend on macroeconomic policy and land

reforms. Russia is counting on foreign capital to help move the

transition process forward, but such factors as the unstable economic

situation, a poor and uncertain tax structure, an undeveloped financial

market infrastructure, and an increased crime rate make foreign investors

hesitant to invest.

USAID MANAGEMENT PERFORMANCE

USAID responded quickly to assist Russia in undertaking its political and

economic reforms, as called for in the Freedom Support Act. However, to

respond quickly, USAID made certain exceptions to its normal procedures

and processes. Although USAID provided a quick and flexible response to a

fluid, unpredictable situation, we identified several management problems

in addition to design problems that occurred, in part, because of the

quick response. USAID officials agreed that management problems occurred,

but they said the risks associated with not responding quickly were high.

Congress granted USAID special authority to provide a quick response.

Section 201 of the Freedom Support Act of 1992 amended the Foreign

Assistance Act by adding chapter 11, section 498B, that waived provisions

of law in providing assistance to the former Soviet Union.

LACK OF MONITORING AND EVALUATION

The large size of USAID's program, the vast geographic area receiving

assistance, and staff limitations have prevented adequate monitoring in

some cases. We found that USAID officials were unaware of positive and

negative aspects of the projects implemented by IBTCI, RCG-Haggler Bailly,

and PIER. USAID officials had not visited some projects, and USAID did

not have representatives located outside Moscow. USAID expected its

Russian staff to conduct field monitoring, but the Russian nationals

lacked the necessary training. USAID officials said they considered but

rejected the idea of establishing field offices outside Moscow.

Without adequate staff, USAID relied mainly on contractors' written and

oral reports to monitor the projects, but some contractors did not report

all problems. The USAID Inspector General also found shortcomings in the

reporting process: contractors were not required to report on their

progress toward specific objectives or indicators.

Moreover, USAID did not enforce some of its reporting requirements. For

example, Deloitte & Touche did not provide the required lists of equipment

purchased with USAID funds and brought into the country, and USAID did not

enforce the requirement.

Although the State Department allowed USAID-Moscow to increase U.S.

direct-hire personnel and personal services contractors from 27 in fiscal

year 1993 to 66 in fiscal year 1995, USAID officials said even more staff

were needed to adequately monitor the program. However, State would not

allow the USAID mission to grow further because, among other reasons, the

USAID assistance program is scheduled to end by the end of the decade.

In some cases, USAID had not determined the relative success or failure of

projects so that it could apply lessons learned to other efforts. It did

not conduct the required periodic assessments evaluations of the coal and

agribusiness projects. The omnibus contracts\10 do not require an

evaluation of the individual tasks, but instead evaluations are to be done

at the end of the contracts, according to USAID officials. The omnibus

contracts for USAID's private sector initiatives alone have obligated

approximately $200 million and are not scheduled to terminate until 1996,

too late to apply lessons learned. In addition, an evaluation that was

conducted was not accurate. A contractor evaluated the district heating

project in June 1993 and gave it high marks. Our 1995 review of the

project found major shortcomings, such as equipment still in boxes after

being delivered in 1993, even though the evaluation report said the

equipment had been installed and was being used. The USAID Inspector

General also found that evaluations had not been conducted and that the

quality and impact of some project evaluations were questionable.

Audit of Selected Privatization and Restructuring Activities in Russia

(Report No. 8-118-95-007, Mar. 10, 1995) and Audit of the Distribution

of Emergency Medical Supplies to the New Independent States Under USAID

Cooperative Agreement With the People-to-People Health Foundation "Project

Hope" (Report No. 8-110-94-006, Mar. 17, 1994).

USAID's Europe and the New Independent States Bureau often procured U.S.

technical assistance through multipurpose contracts, commonly referred to

as "omnibus" contracts. These contracts provided for the performance of

activities, many of which needed to be further defined. USAID used the

omnibus contracts to retain the services of U.S. companies to mobilize,

either in-house or through subcontractors, the resources and expertise

needed to identify and implement project activities. The description of

work in these contracts was very general, but required subsequent

development of "task orders" and "work plans" to further define the

activities the contractor was to perform.

Audit of the ENI Bureau's Cooperative Agreement With World Learning, Inc.

for Support to Non-Governmental Organizations in the New Independent

States of the Former Soviet Union (Report No. 8-110-95-008, Mar. 10,

1995).

PROBLEMS ASSOCIATED WITH DELEGATED AUTHORITY

The devolution of management and monitoring responsibility from

USAID's Washington office to a rapidly growing Moscow office has not

been smooth, and several problems have developed as a result. First,

as USAID's Moscow office assumed more management responsibility,

contractors had to begin dealing with another layer of management

review. This caused delays and confusion among some contractors.

Second, there were tensions between the Washington and Moscow offices

because of differences regarding program implementation. For

example, the offices disagreed about which reformers and Russian

government agencies to work with. Third, the USAIDMoscow office

lacked some essential documents to enable officials to carry out

their duties. We found that key contract and financial documents

were not available in Moscow, a problem also reported by the USAID

Inspector General.

The State Department Coordinator opposed giving greater authority to

USAID-Moscow because he believed USAID-Washington needed to maintain

a more prominent role. He said that because assistance to Russia is

an important foreign policy issue, key decisions should not be

delegated to the field. State and USAID-Washington officials said

they needed quick access to important project data for reporting

purposes, but quick access to data could not be ensured when projects

were managed by the USAID-Moscow office.

Audit of the Bureau of Europe's Technical Assistance Contracts (Report No.

8-180-93-05, June 30, 1993) and Audit of the ENI Bureau's Monitoring,

Reporting and Evaluation System (Report No. 8-000-95-002, Nov. 28,

1994).

LACK OF ADEQUATE INFORMATION SYSTEMS

USAID has not yet developed a good management information system for its

Russia program. The USAID Inspector General reported that USAID lacked an

information system with baseline data, targets, time frames, and

quantifiable indicators by which to measure program progress and results.

USAID's Bureau for Europe and the New Independent States was exempted from

a new agencywide management system because the program was intended to be

short term and regional rather than long term and country-specific. USAID

officials said the pressure to provide assistance quickly meant forgoing

the traditional project design process, which included developing progress

indicators.

Audit of the ENI Bureau's Monitoring, Reporting and Evaluation System

(Report No. 8-000-95-002, Nov. 28, 1994).

POOR FIELD COORDINATION

Part of USAID's assistance strategies was to focus on areas where

reformers were willing to make changes. USAID believed this would help

create a synergy that could stimulate the overall impact of the projects.

Some contractors were not aware of each others' activities. USAID's

management information system did not list contractors by region, and

USAID sometimes did not tell new contractors about other contractors'

activities. In some cities, contractors contacted each other on their own

and started coordinating their efforts. However, this was being done on

an ad hoc basis. In Vladivostok and Yekaterinburg, U.S. Consuls General

facilitated contractor coordination. The USAID Inspector General found

that many projects with similar goals were not linked to one another. Poor

coordination reduced the opportunity to achieve synergy and targeted

impact and gave some Russians the impression U.S. assistance was

fragmented and uncoordinated.

Audit of ENI's Strategy for Managing Its Privatization and Restructuring

Activities in Russia (Report No. 8-118-95-009, Mar. 17, 1995).

The Russian government has no agency to coordinate assistance efforts

within the country.

RECOMMENDATIONS

We recommend that the USAID Administrator focus assistance efforts on

projects that (1) will contribute to systemic reforms; (2) are designed to

be sustainable; (3) are supported by all levels of Russian government; and

(4) whenever possible, use American contractors with an in-country

presence.

AGENCY COMMENTS AND OUR EVALUATION

In commenting on a draft of this report, USAID said the three projects

that we had deemed to have not met their primary objectives did produce

some positive benefits or it was too early to tell the impact the projects

would have. USAID also said it was aware of the problems that have

occurred and has taken steps to correct them or terminate activities that

could not be fixed. USAID pointed to a new computerized monitoring system

that is expected to produce its first report in November 1995.

USAID agreed with our recommendation regarding the focus of its assistance

projects and said it was taking steps to implement it. In addition, USAID

said it was taking corrective action to address the management problems we

identified. However, it stressed that its assistance has had a positive

impact and occurred in a difficult operating environment. USAID indicated

that it had made progress in setting up its own monitoring, reporting, and

evaluation system. It should be pointed out, however, that in November

1994, the USAID Inspector General reported that the system was still far

from able to measure program results.

USAID said that our report would have provided a more balanced and

accurate view of the systemic impact and sustainability of a project's

activities if we had considered the activity in the context of the whole

program. USAID stated that, in nearly every case, the individual projects

we focused on were part of a larger project or program that would have

substantial impact on reforming Russia's economy. USAID is correct that

the projects we examined were usually one component of a larger sector

program; however, USAID is incorrect in its assertion that we evaluated

projects in isolation and without considering the context of the whole

program. The overriding objective of USAID's program in Russia is to

contribute to reforming both the political and economic systems. This is

also the objective of the assistance program for each sector and, with few

exceptions, of each project that supports a sector program. Our

examination focused on the individual building blocks that support sector

programs and ultimately support the reform effort in Russia. In some

cases, we found that the individual building blocks will not contribute to

systemic reform in the sector or in Russia overall. Even though this does

not mean that an entire program, of which a less-than-successful project

is a part, will fail in its systemic reform objective, it does mean that

an unsuccessful project is not contributing to a program's success.

We also disagree with USAID's assertion that significant systemic reform

has resulted from USAID activities in all sectors. For example, the

agribusiness partnerships project, including components reviewed by the

USAID Inspector General, comprises most of the USAID funding going to the

sector but is not expected to contribute significantly to systemic

reforms. Only a limited degree of systemic reform has occurred in other

sectors as well, including the health care and the environmental sectors.

We believe that a sector evaluation, although useful in its own right,

would not have allowed us to draw conclusions about the role and

contribution of individual projects.

USAID provided other comments that we incorporated into the report where

appropriate. The full text of USAID's comments is reprinted in appendix

IV.

Audit of the ENI Bureau's Monitoring, Reporting and Evaluation

System (Report No. 8-000-95-002, Nov. 28, 1994).

SCOPE AND METHODOLOGY

We judgmentally selected 10 individual projects from 6 sectors to review

as case studies. We selected projects based on their geographic

distribution, focusing on regions where several projects were

concentrated. We also considered the level of obligations and

expenditures; the type of assistance provided (e.g., training, technical

assistance, and product delivery); and the type of contracting vehicle

(e.g., cooperative agreements, grants, and contracts). We generally did

not review projects examined by the USAID Inspector General, although we

analyzed its work to assess whether common themes emerged. (See app. II

for a list of the 10 projects we studied and USAID Inspector General

reports we reviewed.)

We analyzed USAID and project documents and interviewed USAID and other

U.S. government officials, U.S. contractors, Russian counterparts, and

beneficiaries. We visited project sites in Western Russia, Siberia, and

the Russian Far East in November 1994 and February 1995.

Appendix III provides a detailed analysis of the 10 projects in our case

study.

We conducted our work from September 1994 to April 1995 in accordance with

generally accepted government auditing standards.

As agreed with your offices, unless you publicly announce this report's

contents earlier, we plan no further distribution of this report until 30

days after its issue date. At that time, we will send copies to the

Secretary of State, the Administrator of USAID, and other interested

congressional committees. Copies will also be made available to others on

request.

Please contact me at (202) 512-4128 if you or your staff have any

questions concerning this report. Major contributors to this report are

listed in appendix V.

Harold J. Johnson, Director

International Affairs Issues

OBLIGATIONS AND EXPENDITURES FOR ASSISTANCE TO RUSSIA

In his January 1995 annual report, the State Department Coordinator

reported about $2.9 billion in obligations and $1.8 billion in

expenditures for Russia through December 1994. (See table I.1.) Between

fiscal years 1990 and 1994, the U.S. Agency for International Development

(USAID) allocated assistance to the New Independent States (NIS) as a

region. During that time, most projects spanned different countries and

USAID did not track how much money was obligated or expended by country.

Thus, USAID country attributions are estimates and should be treated as

such. In fiscal year 1995, USAID began keeping country accounts.

Table I.1

Obligations and Expenditures for

Assistance to Russia (Fiscal Years 1990

through 1994)

(Dollars in millions)

Agency Obligations Expenditures

USAID direct $1,230.0 $440.4

USAID transfers and allocations 171.1 98.1

to other agencies

USAID subtotal 1,401.1 538.5

Department of Defense 291.0 72.9

Department of Agriculture 1,192.0 1,192.0

Total $2,884.1 $1,803.4

Source: Department of State.

PROJECTS AND USAID INSPECTOR

GENERAL REPORTS GAO REVIEWED

We reviewed 10 projects in depth as part of our review. In addition, we

reviewed various reports that USAID's Inspector General has issued on

management issues and projects in Central and East Europe and the former

Soviet Union. The 10 projects and the USAID Inspector General reports we

reviewed are listed in table II.1.

Table II.1

Projects GAO Reviewed

(Dollars in millions)

Start End

Project-implementing partner date date Obligations

Housing policy reform-Urban Sept. Aug. $5.8

Institute 92 94

Voucher privatization Feb. June 4.1

Deloitte & Touche 93 94

Coal project-Partners in June Aug. 8.0\a

Economic Reform 92 95

Small business development Apr. May 95 5.1

American Russian Center, 93

University of Alaska

Environmental policy & Apr. Sept. 26.4\b

technology 94 97

CH2M Hill International

Services

District heating-RCG Haggler Feb. Dec. 1.3

Bailly 92 93

Health care training-Partners Fall Fall 0.7

for International Education 93 93

and Training

Commercial real estate Oct. Dec. 2.0

International Business & 93 94

Technical Consultants, Inc.

Agribusiness partnerships-ri Feb. Sept. 5.2\a

Valley Growers 93 97\c

Russian officer resettlement July July 6.0

Planning and Development 93 94\e

Collaborative International

$64.6

Note: Obligations are as of March 1995.

a Amount could be applied to other countries in the NIS as well as

Russia.

b Total estimated amount of three contracts.

c USAID stopped accepting proposals for partnerships in Russia in

September 1994.

d Primary implementing partner.

e Project had not been completed as of April 1995.

The following are the USAID Inspector General reports GAO reviewed.

Audit of the Bureau for Europe's Technical Assistance Contracts

(Report No. 8-180-93-05, June 30, 1993).

Audit of the ENI Bureau's Monitoring, Reporting and Evaluation

System (Report No. 8-000-95-002, Nov. 28, 1994).

Audit of ENI's Strategy for Managing Its Privatization and

Restructuring Activities in Russia (Report No. 8-118-95-009,

Mar. 17, 1995).

Audit of Selected Privatization and Restructuring Activities in

Russia (Report No. 8-118-95-007, Mar. 10, 1995).

Audit of the Reestablishment of Vaccine Production Activity Under

the New Independent States Health Care Improvement Project No.

110-0004 (Report No. 8-110-94-004, Feb. 25, 1994).

Audit of the Medical Partnerships in Russia and Health Information

Clearing House Activities Under the New Independent States

Health Care Improvement Project (Report No. 8-110-94-005, Feb.

28, 1994).

Audit of the Distribution of Emergency Medical Supplies to the New

Independent States Under USAID Cooperative Agreement With the

People-to-People Health Foundation "Project Hope" (Report No.

8-110-94-006, Mar. 17, 1994).

Audit of the Vulnerable Groups Assistance Program in Russia Under

Project No. 8-110-0001 (Report No. 8-110-93-08, Sept. 24,

1993).

Audit of Activities to Improve Crop Storage Systems in the New

Independent States (Report No. 8-110-94-014, Aug. 31, 1994).

Audit of the ENI Bureau's Cooperative Agreement With World

Learning, Inc., for Support to Non-Governmental Organizations in

the New Independent States of the Former Soviet Union (Report

No. 8-110-95-008, Mar. 10, 1995).

Audit of the Department of Commerce's Special American Business

Internship Training Program in the New Independent States

(Report No. 8-110-93-10, Sept. 24, 1993).

Audit of the Department of Commerce's Consortia of American

Businesses in the New Independent States Program (Report No.

8-110-93-11, Sept. 24, 1993).

Audit of the Nuclear Regulatory Commission's Technical Assistance

Activities in Russia (Report No. 8-118-94-012, June 28, 1994).

Audit of the Department of Energy's Nuclear Safety Technical

Assistance Activities in Russia and Ukraine (Report No.

8-110-95-001, Oct. 7, 1994).

PROJECT SUMMARIES

The following provides a detailed analysis of each project that we

reviewed. We selected one project in each of the following areas: (1)

housing policy reform, (2) voucher privatization, (3) coal, (4) small

business development, (5) environmental policy and technology, (6)

heating, (7) health care, (8) commercial real estate, (9) agribusiness

partnerships, and (10) officer resettlement. Each summary contains

information on the problems in the sector, USAID's project objectives for

the selected contract, and the project approach used by USAID or the

contractor. We also provide our assessment of the contractor's

performance, the impact on systemic reform, and USAID's management of the

contract. The projects are presented on the basis of their capacity to

contribute to systemic reform.

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